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Squeezing Costs Through Technology

   May 01, 2016

The 15-year agreement with Philips allows Marin General to even out its capital expenditures in a stair-step fashion rising from the initial year, and to bring on needed equipment now under the managed services Philips will provide. For example, in 2016 the contract will permit Marin General to replace its fleet of C arms, portable x-ray fluoroscopy devices employed by orthopedic surgeons. "To buy all that stuff would have been a chunk of change," Zielazinski says.

Under the Philips managed services contract, "I'm actually spending even less than what I intended to start spending in 2020. So I get to preserve my cash and prepare for going for that revenue bond," he says. And as of the start of 2016, when the Philips contract was announced, Marin General had increased its cash on hand to 100 days—an important metric that Philips will continue to boost as it approaches the revenue bond sale.

Of course, in calculating the money saved by going the managed services route, Zielazinski is considering more than just the equipment cost. The Philips managed services deal includes maintenance and consulting aspects as well. "If I had added employees to do this, or bought consulting services, I would be paying a premium for that," he says. "Because I know Philips has the right resources I need in these areas, I'll get that at a reduced price."

A provision in the agreement also gives Marin General the option of purchasing non-Philips diagnostic imaging equipment, such as tomosynthesis imaging, a form of digital mammography–important flexibility given that Philips does not make such a device. However, the equipment will still be managed by Philips under the terms of the contract, Zielazinski says. The incentive is for Philips to supply the lion's share of the imaging equipment under the contract with Marin General. "Our savings are better the higher our commitment is," he says.

Already, early in year one of the 15-year contract, "we're starting to see the impact operationally," Zielazinski says. "I would say by the end of the second year, we'll really start to see a dramatic improvement in our current diagnostic imaging services and the addition of services we don't currently provide."

At UPMC, the Pittsburgh-based system that operates more than 20 hospitals and more than 500 doctors' offices and outpatient sites, and has a 2.8-million-member health insurance division, a different kind of vendor-provider partnership recently launched to commercialize UPMC's cost-management software tool, originally championed by Robert Hernandez, former CFO of USX Corporation and now chairperson of the finance committee of UPMC's board of directors.

Scott Mace is the former senior technology editor for HealthLeaders Media. He is now the senior editor, custom content at H3.Group.

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